MILAN, April 18 (Reuters) - The board of Italian bank Monte dei Paschi di Siena on Friday approved a proposal to boost the size of a share sale it is planning to 5 billion euros ($6.9 billion) to help cover any gaps a Europe-wide bank check might find in its finances.

Italy’s third-largest bank held an extraordinary board meeting after saying this week that it was evaluating how much capital it needed ahead of an asset review by the European Central Bank and after discussions with the Bank of Italy.

CEO Fabrizio Viola said increasing its capital by 2 billion euros more than initially planned would give the bank an extra buffer to plug any gap the ECB review might uncover.

“Having an extra capital reserve of around 2 billion euros allows us to be more tranquil as we undertake this exercise and use this reserve to fund additional provisions should these be necessary,” Viola told Sky Italia television after the meeting.

He said the fundraising would also mean the bank could honour its pledge to pay back 3 billion euros of a 4.1 billion euro state bailout this year. The remainder is due to be reimbursed by 2017 but could be repaid early if the results of the ECB review are benign, the bank said.

An extraordinary shareholder meeting was called for May 20 to vote on the bigger cash call proposal. Viola said the bank aimed to launch the cash call around mid-June and have it completed by mid-July.

A banker familiar with the situation told Reuters ahead of the board meeting the extra cash would help Monte dei Paschi increase its buffers against loans turning sour.

BALANCE SHEET CLEAN-UP

Italian banks are cleaning up their accounts and setting aside billions of euros to cover any losses due to bad debts, which have been rising sharply as Italy goes through its longest recession since World War Two.

But while Intesa Sanpaolo and UniCredit, the country’s two largest banks, booked a combined 21 billion euros in provisions for bad debts last year to raise their coverage levels to 46 percent and 52 percent respectively, Monte dei Paschi has lagged behind.

The Tuscan lender - the world’s oldest - set aside 2.75 billion euros for bad debts in 2013, and its coverage ratio of impaired loans stands at 42 percent, which analysts say is likely to fall short of ECB requirements.

“The market is going well. It’s easier to raise funds now,” Viola said, adding that other lenders may have to follow in Monte dei Paschi’s steps. “Increasing the size of the cash call now means you don’t need to do another one later.”

In a sign that lenders in weaker euro zone countries are seeking to benefit from more bullish market conditions, National Bank of Greece won approval on Wednesday to raise up to 2.5 billion euros through a share offering.

The lender had wanted to raise the money by selling non-core assets but changed tack after the Greek central bank pressed it to follow domestic rivals, who have already raised 2.95 billion euros between them from the markets.

And Banco Popolare, the first Italian lender to tap investors for cash ahead of the ECB review, said on Thursday its own 1.5 billion euros cash call had been 99 percent subscribed.

Monte dei Paschi, hit hard by the euro zone debt crisis and a scandal over money-losing derivatives deals, is one of eight Italian banks under ECB scrutiny to raise funds on the market so far this year. Altogether, they have announced plans to raise a combined 10 billion euros.

The bank’s former controlling shareholder, the Monte dei Paschi foundation, has gradually cut its stake to just 2.5 percent, shaking up the shareholder structure, which now includes BlackRock and Latin American investors Fintech and BTG Pactual. (Editing by Hugh Lawson)